Elon Musk believes that Tesla will one day surpass the combined capitalization of Apple and Saudi Aramco. Wall Street says not so fast.
The electric-vehicle maker reported lackluster third-quarter results on Wednesday, with revenue and margins missing expectations, though profit topped them. It’s the first time the company has missed revenue estimates since the third quarter of 2021, according to data compiled by Bloomberg. Musk also said demand was a “little bit harder than it would otherwise be” due to slowdowns in China and Europe.
The results and cautious stance on demand prompted several analysts to lower their price target on the company on Thursday. The company’s average target stands at $298, according to Bloomberg data, nearly 48% above where the shares traded on Thursday morning. Shares of Tesla fell as much as 9% to $202 in New York on Thursday.
“We remain cautious on valuation, particularly in the context of elevated unit volume growth expectations, and continue to see material downside risk to our December 2023 price target,” the JPMorgan analyst wrote. Ryan Brinkman in a note.
Tesla, briefly part of the trillion-dollar valuation group, currently has a market capitalization of $667 billion. Apple is valued at $2.3 trillion, while Saudi Aramco is valued at about $2.1 trillion.
As the US consumer is pressured by high inflation and rapidly rising interest rates, investors are eyeing demand for discretionary items and high-value purchases such as cars this earnings season. After Tesla reported earlier this month that third-quarter deliveries were below expectations, analysts and investors have been keeping an eye out for any signs of cracks in demand.
Demand risks are an especially important concern for Tesla given its rich valuation, which is highly dependent on the company’s future growth potential. Tesla shares are trading at 48 times future earnings, compared to 17 times for the S&P 500 index.
“Tesla shares are based on a growth valuation framework, for which access to low-cost capital is a key factor,” BofA analyst John Murphy wrote in a note to clients, adding that it is possible that the stock is already fairly priced, especially considering market volatility.
However, while the valuation may be held back in the short term by global economic turmoil, ongoing supply chain and logistics issues, and high commodity prices, analysts largely maintain their long-term bullish outlook. for Tesla.
“While Tesla is not insulated from a downturn, we believe its growth and margins could be much more resilient than the rest of the industry in a global downturn,” said Deutsche Bank analyst Emmanuel Rosner, though he lowered the price target. of the shares from $390 to $355.
